Factors1)-On the whole, sales for the year dropped because the Company's major customers continuously cut their production volume in the first half of the year, although they started to recover in the second half.

2)-Ordinary income improved as a result of the Company's group-wide initiatives such as total cost reduction programs.

3)-Current income was down for the year due to the Company's posting an extraordinary loss for business restructuring costs and an impairment loss on fixed assets.

4)Hydraulic shock absorbers -In the first half of the fiscal year, slowdowns in the global automotive market significantly impacted production and sales of the Company.-In the latter half, sales incentive programs to encourage consumer spending were successful, creating growth in demand. -On the whole, the Company's sales were 112,300 million yen, down 9.0% year-on-year.

Hydraulic devices -The slowdown in the automotive market also impacted sales of automotive devices, mainly those connected with power steering systems. The Company's sales in this segment were 31,100 million yen, down 18.2% year-on-year.

Restructuring

-The Company will soon transfer its functions to oversee its European operations to Europe. The Company will delegate responsibilities to control all local operations including production at its plants in Spain and the Czech Republic, development, procurement, and sales to its European unit. Given high expectations from automakers to provide components, which offer optimized balance between quality and cost for the growing small and low-priced vehicle markets, parts manufacturers are required to expand local content ratio and establish methods that make it possible to flexibly adjust production volume and lineups in the changing market environment. By transferring European headquarters functions from Japan, KYB intends to more quickly absorb needs of Japanese and European carmakers so as to enhance its competitiveness in the market. (From an article in the Nikkan Jidosha Shimbun on Feb. 17, 2010)

R&D

R&D Structure

Conducting basic research on hydraulic equipment and automobile devices and developing new products and technologies.

Product Engineering Center

Kani City, Gifu Pref.

In charge of development activities that improve product appeal such as enhancing performance and reducing costs, etc.

KYB Technical Center (Thailand) Co., Ltd.

Chonburi, Thailand

Wholly owned subsidiary in Thailand in charge of engineering services.

-The Company will enhance the function of its KYB Technical Center (Thailand) Co., Ltd., which is now handling services related to aftermarket products. The Company will expand the role of the Thai facility by assigning new tasks such as developing specifications and selecting materials for its OEM products sold mainly in Asia. Shifting such functions to KYB Technical Center (Thailand), which is conveniently located to support the emerging countries, will enable the Group to optimize product specifications for the growing markets, which will translate into growth in sales. (From an article in the Nikkan Jidosha Shimbun on March 2, 2010)

R&D Expenditure

(in millions of JPY)

FY2009

FY2008

FY2007

Overall

2,816

3,268

-

Hydraulic systems

2,664

3,136

3,264

R&D Activities

Hydraulic systemsHydraulic snubbers-Hydraulic shock absorbers for automotive applications: The Company's clients including PSA requested the Company to develop and study relative absorber system (REAS) which are designed to provide both smoother driving and comfort as well as driving stability. -The Company began supplying Nissan Motor Co., Ltd. with Frequency dependent shock absorber "Harmoflex," which is designed to balance the damping forces based on vibrational frequency while driving.

Hydraulic devices-Steering devices for automotive applications: The Company developed vane pumps for Continuously Variable Transmissions (CVTs), successfully reducing their weight by approximately 32% by changing their covering materials from cast iron to Aluminum die-cast. The Company is now supplying these pumps to JATCO. -Devices for vehicles designed to receive green car tax benefits: The Company developed vane pumps for power steering systems equipped with mechanical energy-saving valves. The Company is now supplying these pumps to Mitsubishi Motors.-The Company developed electronically controlled vane pumps designed to control the amount of discharge, provide a superior feeling of control, and heighten eco-friendly features. The Company is now supplying these to Daimler in Germany via KYB Steering Spain.-Electric power steering system: The Company developed a new pinion-assist type electric power steering system which has motors and a decelerator unit located under the rack shaft. The system is designed to match the needs of vehicles with unique layouts such as those equipped with horizontally-opposed engines. Fuji Heavy Industries is going to equip this system on its vehicles. -The Company developed a new pinion-assist type electric power steering system which nicely compliments the low noise level characterizing EVs, offering the driving feel of a standard vehicle. Mitsubishi Motors is going to equip this system on its vehicles.

-The Company will conduct development of new electric power steering (EPS) systems based on the technological development and trends of electric vehicles and cars equipped with electric drive systems. Development activities for electric vehicle bodies are expected to be in full swing over the medium term, which will call for parts manufacturers to engineer specialized components to be fitted into these vehicles. Considering the specifications of electric vehicles, parts suppliers are required to modify the design, size, and weight of their components from their conventional products used in gasoline engine vehicles. In order to absorb new needs of the market, The Company aims to offer optimum EPS units for electric vehicle application by looking closely into new requirements to support the next generation technology. (From an article in the Nikkan Jidosha Shimbun on March 15, 2010)

Fundamental technology-Hydraulic shock absorbers: The Company worked on developing three types of ecological dumpers designed to reduce environmental impact. -Automotive steering devices: The Company kept its focus on developing electric vane pumps that no longer need flow control values, and thus save energy. These pumps, in addition, are designed to control the speed of rotation and thereby discharge only the amount of output needed.

-Production technology: The Company worked on the following technologies. 1) In the process of casting aluminum materials to make outer tubes of front forks, the Company developed technology for automatically eliminating oxidized film, which may cause oil leakage and malfunctions in molten metal surfaces. The Company is already using this process in its production lines. 2) The Company developed technology that automatically labels shock absorbers, which have already been inspected. Previously, the labeling process was done manually. 3) The Company made a review of its conventional, laser-based signaling methods used for checking and correcting gaps resulting from the position of the laser welding apparatus. It also looked into eliminating miss-welding when manufacturing solenoid iron cores. Also, the Company developed laser welding technology that seeks to eliminate gaps due to the the misalignment of the welding apparatus.4) The Company developed technology that automatically presses rubber bushes into shock absorbers. This same technology is also capable of correcting the position of where to press and respond to variations in angles.5) The Company developed technology that automatically inspects variances in the size of welded components of strut type shock absorbers. 6) The Company developed technology that automatically assembles vane pumps temporarily. The vane pumps are being used on Continuously Variable Transmissions (CVTs).

1.Licensing of industrial property rights2.Licensing of manufacturing and distributorship rights3.Provision of technical expertise, information and know-how

Feb. 1, 2010 - Jan. 31, 2011

KYB Manufacturing North America, Inc.(USA)

Shock absorbers for automobiles

1.Licensing of industrial property rights2.Licensing of manufacturing and distributorship rights3.Provision of technical expertise, information and know-how

Oct. 1, 2009 - Sept. 30, 2010

KYB Steering Spain, S.A.(Spain)

Automobile hydraulic equipment

1.Licensing of industrial property rights2.Licensing of manufacturing and distributorship rights3.Provision of technical expertise, information and know-how

Jan. 01, 2004 - Dec. 31, 2011

KYB Suspensions Europe, S.A.(Spain)

Shock absorbers for automobiles

1.Licensing of industrial property rights2.Licensing of manufacturing and distributorship rights3.Provision of technical expertise, information and know-how

Oct. 1, 2009 - Sept. 30, 2010

Investment Activities

Capital Expenditure

(in millions of JPY)

FY2009

FY2008

FY2007

Overall

10,081

24,968

23,564

Hydraulic systems

9,767

24,327

23,243

-Capital investment in the hydraulics segment was mainly allocated to the Company and its subsidiary overseas, KYB Advanced Manufacturing Spain, S.A..-As of the end of fiscal year 2009, which ended March 2010, the Company had 6.8 billion yen allotted to renew and renovate facilities and equipment, of which 6.4 billion yen is being invested in the hydraulics segment.